Sinclair et al v. Fox Hollow, et al, No. 1:2003cv05439 - Document 461 (E.D. Cal. 2010)

Court Description: MEMORANDUM DECISION Regarding Defendants' 422 Motion to Dismiss, signed by Judge Oliver W. Wanger on 12/20/2010. (Gaumnitz, R)
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Sinclair et al v. Fox Hollow, et al Doc. 461 1 2 3 4 UNITED STATES DISTRICT COURT 5 EASTERN DISTRICT OF CALIFORNIA 6 7 8 RICHARD SINCLAIR, et al. Plaintiffs, 9 10 11 12 FOX HOLLOW OF TURLOCK OWNERS ASSOCIATION, et al. Defendants. 14 I. INTRODUCTION. 15 17 18 19 20 21 22 23 24 25 26 27 MEMORANDUM DECISION REGARDING DEFENDANTS’ MOTION TO DISMISS (Doc. 422) v. 13 16 1:03-cv-05439-OWW-DLB This case is a consolidation of three actions: An action commenced Association Sinclair, by Plaintiff (“Fox Gregory Fox Hollow”) Mauchley, Hollow against of Turlock Richard Lairtrust, Homeowners’ Sinclair, LLC, Brandon Capstone, LLC, Mauctrst, LLC, and Stanley Flake as Trustee of Capstone Trust, Case No. CV-F-03-5439 OWW/DLB (“Fox Hollow Action”); an action commenced by California Equity Management Group, Inc. (“CEMG”) against Mauctrst LLC, Gregory Mauchley, Diana Mauchley, Lairtrust LLC, Richard Sinclair, Deborah Sinclair, Sinclair Enterprises, Inc., Capstone, LLC, Brandon Sinclair, Stanley Flake, and Stanley Flake as Trustee of the F. Hanse Trust and of the Julie Insurance Trust Case No. CVF- 03-5774 OWW/DLB (“CEMG Action”); and an action commenced by Lairtrust LLC, Mauctrst LLC, and Capstone LLC against 28 1 1 Fox Hollow, Andrew Katakis, and California Equity Management Group, 2 Inc. in the Stanislaus County Superior Court, Case No. 322675 3 (“Lairtrust Action”), removed to this Court and consolidated with 4 the Fox Hollow and CEMG Actions by Order filed on October 6, 2003 5 (“Consolidated Federal Actions”). 6 Fox Hollow filed its original complaint in this action on 7 April 4, 2003. 8 Hollow’s FAC”) on July 15, 2003. 9 initial complaint in this action. 10 Fox Hollow filed a first amended complaint (“Fox On June 5, 2003, CEMG filed its CEMG filed a third amended complaint (“CEMG TAC”) on June 22, 2007. (Doc. 300). 11 On July 21, 2010, Fox Hollow and CEMG were granted leave to 12 file a consolidated amended complaint. (Doc. 409). Fox Hollow and 13 CEMG (“Plaintiffs”) filed the operative consolidated complaint 14 (“Consolidated Complaint”) on July 21, 2010. 15 Defendants Capstone and LLC Mauctrst (Doc. 410). (“Capstone”), LLC LLC 16 (“Lairtrust”), 17 “Defendants”) filed a motion to dismiss the Consolidated Complaint 18 on August 10, 2010. 19 the motion to dismiss on October 8, 2010. 20 filed a reply to Plaintiffs’ opposition on October 18, 2010. (Doc. 21 439). 22 Defendants motion to dismiss.1 23 /// 24 /// (Doc. 422). (“Mauctrst”) Lairtrust (collectively, Plaintiffs filed opposition to (Doc. 437). Defendants On November 8, 2010, the court conducted a hearing on 25 26 27 28 1 The November 8 hearing also encompassed Plaintiffs’ motion to dismiss the cross-complaint filed by Defendants Gregory Mauchly, Brandon Sinclair, and Richard Sinclair and Plaintiffs’ alternative motion for more definite statement. (Docs. 431, 432, 434, 435). Plaintiffs’ motions will be resolved in a separate memorandum decision. 2 II. FACTUAL BACKGROUND. 1 2 This action a arises out thirty-five of California, known as Fox Hollow of Turlock (“the Property”). 5 Plaintiff Fox Hollow is the home owners’ association (“HOA”) for 6 the Property. Plaintiff CEMG is the record owner of lots contained 7 within the Property, the successor in interest to lenders who 8 extended 9 assignee of the rights of certain tenants who entered into leases lots within complex the in scheme 4 by home fraudulent concerning secured town alleged 3 loans unit an Property, Turlock, and the 10 for units contained in the Property. Mauctrst, Lairtrust, and 11 Capstone are limited liability companies that were allegedly used 12 to convert HOA funds, effect property transfers, obtain loans, 13 prosecute dilatory lawsuits, and to carry out other parts of the 14 alleged schemes that form the basis for the Racketeer Influenced 15 and Corrupt Organizations Act (“RICO”)2 claims advanced in the 16 Consolidated Complaint. 17 Fox Hollow’s FAC 18 Fox Hollow filed its FAC on July 15, 2003. (Motion to Dismiss, 19 Ex. A). Fox Hollow’s FAC named Richard Sinclair, Brandon Sinclair, 20 Gregory Mauchley, Mauctrst LLC, Capstone Trust, Stanley Flake, 21 Lairtrust LLC, Capstone LLC, and Does 1 through 10 as Defendants. 22 Fox Hollow’s FAC contained the general allegation that: 23 at all times material hereto, each defendant named in this complaint was the agent, employee, or servant of the other defendants, and was at all times material hereto acting within the course and scope of said agency, employment, or servitude with the permission and consent of the other defendants 24 25 26 27 28 2 18 U.S.C. § 1961 et seq. 3 1 (Fox Hollow’s FAC at 3).3 2 According to Fox Hollow’s FAC, in 1993, Defendant Richard 3 Sinclair represented to the Turlock City Counsel that he was the 4 owner of the Property and applied to convert the Property from an 5 apartment complex into a subdivision comprised of air and space 6 condominiums. 7 the proposed subdivision, subject to requirements imposed by the 8 City’s Department of Building and Safety. 9 Richard Sinclair failed to obtain the permits necessary to effect 10 (Fox Hollow FAC at 4). the proposed subdivision. The City of Turlock approved (Fox Hollow FAC at 4). (Fox Hollow FAC at 4). 11 Gregory Mauchley and Mauctrst, LLC acquired the Property in 12 1998 as a multifamily housing project. (Fox Hollow FAC at 4). 13 Neither Mauchley, Mauctrst, nor any other owner of the property had 14 obtained the permits necessary to effect the proposed subdivision 15 at the time Fox Hollow filed the FAC. 16 Although the proposed subdivision was never completed, Gregory 17 Mauchley, Mauctrst LLC, Richard Sinclair, and other Defendants 18 conspired to borrow funds secured by individual lots within the 19 Property from lenders such as GMAC Mortgage, Bank One, Advanta 20 Mortgage, 21 Mauchley, Mauctrst LLC, and other Defendants collectively obtained 22 nineteen 23 containing multiple units. 24 Mauchley and Mauctrst encountered difficulty in making payments on 25 loans secured by the Property, and in or about August 2000, ContiMortgage, separate loans and HFC. secured by (Fox Hollow FAC at 4). (Fox Hollow nineteen FAC at individual (Fox Hollow FAC at 5). 5). lots Gregory 26 27 28 3 Although this broad, conclusory allegation of agency is insufficient under contemporary pleading standards, Fox Hollow’s FAC pre-dated recent refinements to the Supreme Court’s pleading jurisprudence. 4 1 financial instructions began to initiate foreclosures on the real 2 property collateral. (Fox Hollow FAC at 5). 3 After an unsuccessful attempt at reorganization pursuant to 4 Chapter 11 of the U.S. Bankruptcy Code in the year 2000, Mauctrst 5 sought to transfer the Property to Gregory Mauchley. 6 FAC 7 Mauctrst LLC and Gregory Mauchley, filed numerous lawsuits against 8 lenders in order to delay or reverse foreclosure sales in June, 9 July, and August of 2000. 10 at 5). Additionally, Richard Sinclair, as (Fox Hollow attorney for (Fox Hollow FAC at 5-6). In or about July 2000, purporting to act as the Board of 11 Directors for the Fox Hollow HOA, Richard Sinclair, Brandon 12 Sinclair, and Gregory Mauchley entered into a contract appointing 13 Richard Sinclair as the attorney for the HOA. 14 6). 15 the date on which Articles of Incorporation were filed with the 16 California Secretary of State. 17 common 18 Declaration of Covenants, Conditions, and Restrictions (“CC&R’s”) 19 applicable to the Property; instead, the common area was deeded 20 from Stanley Flake to Gregory Mauchley and then to Mauctrst LLC. 21 (Fox Hollow FAC at 6). (Fox Hollow FAC at In fact, the HOA was not established until December 6, 2000, area was ever deeded (Fox Hollow FAC at 8). to the HOA as Further, no required by the 22 Although the HOA was not established until December 2000, in 23 October of 2000, Richard Sinclair began attempting to collect HOA 24 dues of $300.00 per month per parcel. 25 Richard Sinclair used monies received as HOA dues to fund Mauchley 26 and Macustrst’s foreclosure litigation, to pay himself legal fees, 27 to pay management fees to himself and to his son Brandon Sinclair, 28 and to purchase insurance for Mauctrst. 5 (Fox Hollow FAC at 6). (Fox Hollow FAC at 7). 1 Richard Sinclair did not use the HOA dues collected for the 2 maintenance and care of the Property. (FAC at 7). Richard Sinclair 3 did not attempt to collect any monthly dues for units owned by 4 Mauchley or Mauctrst. (Fox Hollow FAC at 7). 5 On February 1, 2001, Bank One National Association, an owner 6 of units at the Property through foreclosure, sued the Fox Hollow 7 HOA alleging, inter alia, failure to maintain the Property and 8 breach of fiduciary duty. 9 HOA was subsequently placed in receivership from March 2001 through (Fox Hollow FAC at 8). (Fox Hollow FAC at 9). The Fox Hollow 10 October 2002. 11 nor Richard Sinclair paid HOA dues for the units they owned despite 12 the receiver’s collection attempts. (Fox Hollow FAC at 9). On 13 October 1, 2002, the Fox Hollow HOA held an election and elected 14 new members of the Board of Directors. Hollow’s Fox 16 Sinclair 17 Specifically, the FAC averred that Richard Sinclair operated the 18 Fox Hollow HOA as an enterprise engaged in a pattern of extortion 19 and mail fraud, and breach of his fiduciary position to obtain 20 secret profits. 21 RICO claim asserted in Fox Hollow’s FAC was that the HOA collected 22 dues to which it was not entitled and used monies collected as dues 23 for improper purposes such as paying Richard Sinclair legal fees 24 and diverting funds to Brandon Sinclair, Gregory Mauchley, and 25 Mauctrst. 26 asserted a conspiracy cause of action that alleged that “all 27 defendants” conspired to use fraudulently use the HOA for their 28 collective benefit. “Does 1 asserted through a (Fox Hollow FAC at 9). 15 and FAC Neither Mauchley, Mauctrst, RICO 10.” claim (Fox (Fox Hollow FAC at 9-11). (Fox Hollow FAC at 9-11). Hollow FAC Richard at 9). The gravamen of the Fox Hollow’s FAC also (Fox Hollow FAC at 17). 6 against 1 Fox Hollow’s FAC asserted a claim for unjust enrichment 2 against Richard Sinclair, Brandon Sinclair, Mauctrst LLC, and “Does 3 1 through 10" arising out of Defendants’ failure to pay dues and 4 conversion of monies paid by others as dues. 5 16-18). 6 CEMG’s TAC 7 (Fox Hollow’s FAC at CEMG filed its TAC on June 22, 2007.4 CEMG’s TAC named 8 Mauctrst LLC, Gregory Mauchley, Capstone LLC, Stanley M. Flake, 9 Brandon Sinclair, Lairtrust LLC, and Sinclair, among 10 others, as Defendants. 11 at all times relevant, Mauctrst was the alter ego of Gergory 12 Mauchley, Capstone LLC was the alter ego of Brandon Sinclair, and 13 that Lairtrust was the alter ego of Richard Sinclair. 14 4-5). 15 CEMG’s TAC (CEMG TAC at 1). Richard alleged that CEMG’s TAC asserted that, Defendants were (CEMG TAC at the owners and 16 original developers of the Fox Hollow Property. 17 Beginning in or about July 1998, Defendants sought to refinance 18 certain loan obligations secured by deeds of trust on each lot. 19 (CEMG TAC at 10). 20 lender, 21 several different lenders. 22 secured by a deed of trust in first position on the lot or lots 23 described therein. 24 executed and delivered to lenders did not include descriptions of 25 garage spaces that were part of the lots. (CEMG TAC at 12-13). From 26 1999 through 2001, Defendants defaulted in their obligations under Defendants (CEMG TAC at 8). After first seeking refinancing from a single decided to refinance individual (CEMG TAC at 10). (CEMG TAC at 11). lots with Each loan was Some of the deeds of trust 27 28 4 Neither Defendants’ motion to dismiss the TAC (Docs. 317, 318), nor Defendants’ motion to dismiss the Consolidated Complaint contend that the TAC was untimely. 7 1 the promissory notes and deeds of trust, and the respective 2 financial institutions initiated foreclosure proceedings against 3 Defendants. (CEMG TAC at 12). 4 CEMG’s TAC asserts causes of action for slander of title and 5 abuse of process against Defendants. The slander of title claim is 6 based on a letter Defendants allegedly sent to Chicago Title 7 Company on October 12, 2000, which indicated that title to certain 8 lots could not be transferred. (CEMG TAC at 23). 9 process cause of action is based on allegations that Richard 10 Sinclair, Gregory Mauchley, Mauctrst, Lairtrust, and Capstone, 11 among others, filed various lawsuits in order to obtain unfair 12 advantages and to prevent foreclosures and transfers of certain 13 lots within the Property. 14 alleges that Defendants falsely represented to tenants of certain 15 lots that Defendants were the owners of such lots in order to 16 collect rents and security deposits that were in fact owed to 17 CEMG’s predecessors in interest. 18 (CEMG FAC at 25-27). The abuse of CEMG’s TAC also (CEMG TAC at 19- 21). CEMG’s TAC alleges two causes of action for fraud against all 19 Defendants. CEMG’s first fraud claim is based on Defendants’ 20 alleged false representations to lenders regarding the inclusion of 21 garage spaces in the legal description of certain lots. 22 at 16). 23 loan financing scheme, whereby Defendants conspired to defraud 24 lenders, 25 transferring title among themselves in order to avoid liability on 26 loans and other debts relating to the lots; (2) filing legal 27 proceedings in order to avoid loans and debts; (3) failing to 28 comply with conditions imposed by the City of Turlock required to (CEMG TAC CEMG’s second fraud claim is based on Defendants alleged inter alia, by (1) subdividing 8 the Property and 1 effect proper subdivision of the Property; (4) failing to properly 2 form the HOA; (5) refusing to convey ownership and rights in 3 certain garages; (6) collecting rents and deposits for properties 4 not owned by Defendants; and (7) misappropriating funds from the 5 HOA. (CEMG TAC at 28-29). 6 CEMG’s TAC asserts a RICO claim against all Defendants. 7 CEMG’s TAC specifically alleges that Richard Sinclair, Brandon 8 Sinclair, and Gregory Mauchley, through the enterprise of the Fox 9 Hollow HOA, made fraudulent 10 tenants. (CEMG TAC at 30). 11 The Consolidated Complaint 12 demands for dues to lenders and The Consolidated Complaint contains a detailed history of the 13 Fox Hollow Property. 14 Defendants Richard Sinclair and his spouse originally purchased the 15 Property in 1988 after obtaining approval from the City of Turlock 16 to construct an apartment complex. (CC at 7). After the Sinclairs 17 lost Sinclair 18 Defendants Flake and Mauchley and discussed a plan to reacquire the 19 Property 20 discussions, Richard Sinclair formed a trust for Mauchley in 1995 21 named “Mauctrst,” and Defendant Flake, as Trustee of the Julie 22 Insurance Trust, purchased the Property from the lender on or about 23 October 31, 1995 for 1.27 million dollars. the property from the to According to the Consolidated Complaint, foreclosure, lender. (CC at Richard 10-11). contacted Pursuant to such (CC at 11). 24 In 1997 Richard Sinclair, Mauchley, and Flake engaged in a 25 title churning and loan financing scheme by creating the false 26 appearance 27 association and the false appearance of arms length transactions in 28 order to borrow more than $1.4 million against the Fox Hollow of a planned unit development 9 with a homeowners 1 Property. (CC at 12). As part of the scheme, Defendant Richard 2 Sinclair assisted Defendant Mauchley in obtaining loans on Lots 1, 3 11, 18 and 19, each in the amount of $119,000, and an additional 4 loan in the amount of $1 million against the balance of the Fox 5 Hollow Property, from GMAC Mortgage Corporation (“GMAC”), secured 6 by first deeds of trust in favor of GMAC. 7 part of the scheme, the $1.9 million price for Fox Hollow was paid 8 to Defendant Flake from the proceeds on the loans from GMAC and by 9 a Deed of Trust in favor of Defendant Flake, as trustee of the 10 Capstone Trust, against the Fox Hollow Property. (CC at 13). 11 Defendant Mauchley falsely represented and promised in the “Planned 12 Unit Development Rider” included in the deeds of trust in favor of 13 GMAC that were recorded against Lots 1, 11, 18 and 19, that there 14 was an existing home owners association responsible for managing 15 common areas at the property. 16 Sinclair, Mauchley and Flake also concealed from GMAC that the 17 corresponding one car garage for Lot 18 was on Lot 18A, that the 18 corresponding one car garage for Lot 18 was not included in the 19 legal description under the deed of trust for the loan on lot 18, 20 that the corresponding one car garage for Lot 18 was left as 21 additional collateral for Defendant Flake to receive the balance of 22 the sales price from the creation of the other fifteen(15) lots, 23 and that the corresponding one car garage for Lot 18 was left out 24 as part of the deal between Defendants Richard Sinclair, Mauchley 25 and Flake. (CC at 13). (CC at 13). Also, as Defendants Richard (CC at 14). 26 Defendants Richard Sinclair, Mauchley, and Flake continued the 27 fraudulent record title churning and financing scheme at the 28 Property in 1998. (CC at 14). As part of the scheme, Defendant 10 1 Richard Sinclair, in the name of Defendant Mauchley, filed 2 applications for loans against each of the fifteen remaining lots 3 at the Property; each of these loans was based on each of the lots 4 being individually saleable. 5 Sinclair, Mauchley, and Flake concealed from each of the lenders 6 that the corresponding one car garages for certain lots were not 7 included in the legal description in the deed of trust for the loan 8 on each such lot, and that the corresponding one car garages were 9 left as additional collateral for Defendant Flake and were left out 10 as part of the deal between Defendants Richard Sinclair, Mauchley, 11 and Flake in 1997. (CC at 15). Defendants Richard (CC at 18). 12 By July 1999, several of the loans Defendants obtained through 13 the loan financing scheme had gone into default. (CC at 19). 14 Defendants Richard Sinclair, Mauchly, and Mauctrst attempted to 15 renegotiate or purchase the loans at substantially discounted rates 16 by revealing to the lenders that the lots were not individually 17 saleable due to the fact that the Property had not been properly 18 subdivided. 19 purportedly on behalf of the Fox Hollow HOA, sent a letter to 20 Chicago Title Company, among others, indicating that certain lots 21 could 22 subdivision of the property had not been effected. 23 not (CC at 19-20). be transferred In October 2000, Richard Sinclair, because certain prerequisites to (CC at 21-22). In June of 2000, lenders began completing foreclosures. (CC at 24 22). In response, Richard Sinclair prepared and filed in the name 25 of Mauctrst and Mauchley meritless lawsuits in an attempt to delay 26 the foreclosures. 27 Defendants 28 purporting to act on behalf of the Fox Hollow HOA, began demanding Richard (CC at 24). Sinclair, Beginning in August of 2000, Mauchly, 11 and Brandon Sinclair, 1 HOA dues from various lenders that had foreclosed on lots within 2 the Property. (CC at 23). By December 2002, Richard Sinclair, 3 Mauchley, Brandon 4 foreclosures in the name of the Fox Hollow HOA on various lots for 5 failure to pay assessments. and Sinclair had begun pursuing their own (CC at 23). 6 On or about May 2001, Defendants Mauchley and Flake, as 7 trustee of the Capstone Trust, entered into a settlement agreement 8 with GMAC of a lawsuit commenced by Mauchley and Mauctrst. 9 26). Pursuant to the settlement, Mauchley agreed to drop the 10 lawsuit, and Defendant Flake, as a purported junior lien holder on 11 Lots 12 possession of said lots “delivered to Capstone at close of escrow.” 13 (CC at 26). 14 concealed from GMAC during the negotiations that they had agreed 15 among themselves to use Capstone Trust as a straw buyer who would 16 immediately upon purchase of a lot from GMAC, transfer title to 17 such lot to Defendant Richard Sinclair in a second escrow as part 18 of Defendant Richard Sinclair obtaining a loan against such lot in 19 an amount substantially in excess of the amount paid to GMAC. 20 at 21 themselves the net loan proceeds in excess of closing costs and the 22 amount paid to GMAC. (CC at 26). 23 1, 26). From 11, 18 and agreed to purchase said lots, with Defendants Richard Sinclair, Mauchley and Flake Defendants 2000 19, (CC at to Richard 2002, Sinclair Defendants and Brandon Flake split Sinclair, (CC among Richard 24 Sinclair, and Lairtrust collected rents on lots they did not own, 25 entered into leases for units they did not own, and refused to 26 return rents and security deposits to tenants. 27 28 (CC at 28). Defendants continued to assert interests in lots contained within the Property in 2007 and 2008. 12 On or about June 26, 2007, 1 Defendant Richard Sinclair caused a quitclaim deed to be recorded 2 purportedly transferring title to certain lots containing garage 3 spaces from Defendant Mauchley to Defendant Lairtrust. (CC at 31). 4 In 2008, Richard Sinclair commenced multiple unlawful detainer 5 actions in the names of Mauctrst and Lairtrust against CEMG and its 6 tenants, asserting ownership of garage lots and seeking to evict 7 CEMG and its tenants from such garage lots. 8 9 (CC at 32-33). The Consolidated Complaint alleges, among other causes of action, a RICO claim and an unjust enrichment claim against 10 Mauctrst, Richard Sinclair, Brandon Sinclair, Mauchley, Flake, 11 Lairtrust, and Capstone based on the conduct described in the 12 complaint. 13 (CC at 39, 42). IV. DISCUSSION. 14 Defendants contend that the RICO and unjust enrichment claims 15 advanced in the Consolidated Complaint are time-barred because they 16 do not relate back to Plaintiffs’ respective complaints filed 17 within the limitations period. Rule 15(c)(1)(B) of the Federal 18 Rules of Civil Procedure provides in part: 19 20 21 An amendment to a pleading relates back to the date of the original pleading when . . . the amendment asserts a claim or defense that arose out of the conduct, transaction, or occurrence set out--or attempted to be set out--in the original pleading 22 Claims arise out of the same conduct, transaction, or occurrence if 23 they "share a common core of operative facts" such that the 24 plaintiff will rely on the same evidence to prove each claim. 25 Williams v. Boeing Co., 517 F.3d 1120, 1133 (9th Cir. 2008) (citing 26 Martell v. Trilogy Ltd., 872 F.2d 322, 325-26 (9th Cir. 1989) and 27 Percy v. S.F. Gen. Hosp., 841 F.2d 975, 978 (9th Cir. 1988)). 28 13 1 Where an amendment seeks to assert a new legal theory of recovery 2 based on the same facts alleged in the original pleading, the 3 relation back doctrine applies. 4 Court of Appeals explained: 5 See id. As the Second Circuit Where an initial complaint alleges a basic scheme of defrauding investors by misrepresenting earnings and profitability, an allegation of accounts receivable manipulation in an amended complaint will relate back because it is a natural offshoot of that scheme. And where an initial complaint alleges inadequate internal controls leading to overstatement of accounts receivable, a defendant is on notice of a claim in an amended complaint that it improperly recognized revenues and failed to establish sufficient reserves for doubtful accounts in violation of GAAP and industry standards. In contrast, even where an amended complaint tracks the legal theory of the first complaint, claims that are based on an entirely distinct set of factual allegations will not relate back . 6 7 8 9 10 11 12 13 Slayton v. Am. Express Co., 460 F.3d 215, 228 (2nd Cir. 2006). 14 A. RICO Claim Against Moving Defendants 15 1. Fox Hollow’s Claim 16 Defendants argue that the RICO claim set forth in the 17 Consolidated Complaint does not relate back to Fox Hollow’s FAC 18 because: 19 new factual allegations [contained in the Consolidated Complaint] by their sheer number and detail are so vastly different from the original allegations of [Fox Hollow’s FAC] that it cannot be said that the Consolidated Complaint’s RICO cause of action is based on the same operative facts] 20 21 22 23 (Defs. Reply at 5). 24 USA, Inc., 580 F. Supp. 2d 985, 996-997 (C.D. Cal. 2008) for the 25 proposition that “the combination of the significant increase and 26 detail of factual allegations in the Consolidated complaint...and 27 the 28 reasons for not applying the relation back doctrine to this case.” escalation of Defendants cite Friedman v. 24 Hour Fitness Defendants’ potential 14 liability are proper 1 (Reply at 5). Friedman is distinguishable. 2 First, in Friedman, the plaintiffs had not alleged a RICO 3 claim in the pleading they sought to relate their amended complaint 4 back 5 plaintiffs sought to relate their claim back to was critical to the 6 holding in Friedman: 7 to. The absence of a RICO claim in the pleading the the fact that RICO and EFTA claims are different in character from the common law fraud and breach of contract claims that were at the core of three previous iterations of the complaint weighs against permitting relation back. The addition of RICO and EFTA to this action escalates Defendant's potential liability: Treble damages and civil forfeiture are available under RICO, and the EFTA authorizes potentially significant damages for class actions. See 15 U.S.C. § 1693m(a)(2)(B). Plaintiffs have filed three amended complaints. They had numerous opportunities to provide meaningful notice of their RICO and EFTA theories to Defendant. They failed to do so. 8 9 10 11 12 13 14 Id. at 997. 15 Hollow FAC at 9). According to Fox Hollow’s FAC, the Fox Hollow HOA 16 was 17 defendants 18 purportedly for the paying of dues to the HOA. 19 at ¶43-44). 20 the Here, Fox Hollow’s FAC alleged a RICO claim. “enterprise” obtained through “secret which Richard profits” by Sinclair (Fox and collecting doe money (Fox Hollow’s FAC Second, the RICO claim in Friedman was predicated on factual 21 allegations not contained in the original complaint. 22 the transactions underlying the Consolidated Complaint’s RICO claim 23 were alleged in Fox Hollow’s FAC, albeit with less specificity than 24 that provided in the Consolidated Complaint. 25 Hollow’s FAC alleged that (1) Richard Sinclair diverted monies paid 26 as dues to the HOA to himself as management fees for the HOA, (2) 27 Richard Sinclair diverted monies paid as dues to the HOA to his son 28 by purchasing insurance policies for the benefit of Mauctrst LLC 15 Id. Here, Inter alia, Fox 1 with HOA funds; (3) Mauctrst LLC and Richard Sinclair conspired to 2 borrow funds secured by individual lots from GMAC, Bank One, 3 Advanta 4 Capstone Trust, Capstone LLC, and Lairtrust LLC failed to pay HOA 5 fees; and (5) Richard Sinclair and Mauctrst filed numerous dilatory 6 lawsuits to prevent foreclosures and to obtain windfall profits. 7 (Id. at ¶18; ¶45-49). 8 of operative facts related to the Fox Hollow Property. Fox Hollow’s 9 FAC also contained the general allegation that: 10 Mortgage, ContiMortgage, and HFC; (4) Mauctrst LLC, The claims all related to the same nucleus at all times material hereto, each defendant named in this complaint was the agent, employee, or servant of the other defendants, and was at all times material hereto acting within the course and scope of said agency, employment, or servitude with the permission and consent of the other defendants 11 12 13 (Fox Hollow’s FAC at 3).5 14 a. Fox Hollow’s Allegations Against Mauctrst 15 Fox Hollow’s FAC contains sufficient factual allegations 16 against Mauctrst to permit the RICO claim alleged in the 17 Consolidated Complaint to relate back to Fox Hollow’s FAC. 18 According to Fox Hollow’s FAC, Mauctrst conspired to obtain loans 19 from various banks under false pretenses, conspired to divert Fox 20 Hollow HOA fees, and conspired to file dilatory lawsuits in order 21 to delay foreclosures. Although the Consolidated Complaint pleads 22 additional details regarding Mauctrst’s role in the RICO 23 enterprise, the additional details refer to the same transactions 24 and the same overall scheme alleged in Fox Hollow’s FAC. Because 25 the RICO allegations against Mauctrst set forth in the Consolidated 26 27 28 5 Although this broad, conclusory allegation of agency is insufficient under contemporary pleading standards, Fox Hollow’s FAC pre-dated recent refinements to the Supreme Court’s pleading jurisprudence. 16 1 Complaint are “natural offshoots” of the allegations made against 2 Mauctrst in Fox Hollow’s FAC, and because Fox Hollow’s FAC alleged 3 an agency relationship between Richard Sinclair and Mauctrst, Fox 4 Hollow’s FAC put Mauctrst on notice of its potential liability 5 under RICO. 6 doctrine 7 stated in a slightly different way,” claim alleged in original 8 complaint). 9 Mauctrst is DENIED. See Slayton, 460 F.3d at 228 (applying relation back where amended complaint's allegations “amplified, or The motion to dismiss Fox Hollow’s RICO claim against b. Capstone and Lairtrust 10 11 The only specific factual allegations against Capstone and 12 Lairtrust included in Fox Hollow’s FAC concerned the entities’ 13 failure to pay HOA dues. 14 loan financing scheme between Mauctrst and Richard Sinclair, and 15 the Consolidated Complaint alleges that Capstone and Lairtrust were 16 entities Richard Sinclair and others used to effect the loan 17 scheme. 18 others 19 enterprise, and the Consolidated Complaint alleges that Richard 20 Sinclair filed such 21 Conduct alleged in 22 Consolidated Complaint’s RICO claim against Lairtrust and Capstone. 23 The Consolidated Complaint relates back to Fox Hollow’s FAC. However, Fox Hollow’s FAC alleged a broad Fox Hollow’s FAC also alleged that Richard Sinclair and filed dilatory lawsuits lawsuits Fox in furtherance through Hollow’s FAC Lairtrust is the of and basis the RICO Capstone. for the 24 2. CEMG’s RICO Claims 25 On June 22, 2007, CEMG filed a third amended complaint (TAC). 26 (Doc. 300).6 CEMG’s TAC alleged that, at all times relevant, 27 28 6 Neither Defendants’ motion to dismiss the TAC (Docs. 317, 318) nor the motion to dismiss the Consolidated Complaint allege that the TAC was untimely. 17 1 Capstone LLC was the alter ego of Brandon Sinclair, Lairtrust was 2 the alter ego of Richard and Deborah Sinclair, and Mauctrst LLC was 3 the alter ego of 4 5). 5 into a conspiracy to improperly subdivide the Fox Hollow property, 6 obtain loans on the lots while transferring title to the lots as 7 part of a scheme to avoid liability on the loans and other debts 8 related to the lots, file legal proceedings to avoid loans and 9 debts, and misappropriate funds from the HOA, (CEMG TAC at 29-30); 10 these same allegations form the basis of the Moving Defendant’s 11 RICO liability as stated in the Consolidated Complaint. 12 Gregory Mauchley and Diana Mauchley. (TAC at 4- Inter alia, CEMG’s TAC alleged that the Defendants entered The RICO claim alleged in the Consolidated Complaint is based 13 on the same operative facts set forth in the TAC. 14 Consolidated Complaint adds new details, the allegations against 15 Moving Defendants arise out of the same conduct and transactions 16 set forth in the TAC. Moving Defendants’ argument that CEMG waived 17 its RICO claim against them by specifically identifying only 18 Richard Sinclair, Brandon Sinclair, and Gregory Mauchley in the 19 TAC’s RICO cause of action is not supported by any legal authority 20 provided by Defendants. Advancement of a new legal theory based on 21 facts pled in an earlier complaint is permissible under Rule 15. 22 See Martell v. Trilogy Ltd., 872 F.2d 322, 325-26 (9th Cir. 1989) 23 (finding 24 complaint added new theory of recovery based on facts alleged in 25 original complaint). 26 relates back to CEMG’s TAC. 27 /// 28 /// that amended complaint related back Although the where amended The Consolidated Complaint’s RICO claim 18 1 B. Fox Hollow’s Unjust Enrichment Claim 2 Defendants contend that because Fox Hollow’s FAC did not 3 assert an unjust enrichment cause of action against them, Fox 4 Hollow’s claim is time-barred. 5 Fox Hollow’s unjust enrichment claim is a legal theory that clearly 6 arises out of the same conduct alleged in Fox Hollow’s FAC: 7 Defendants’ 8 misappropriation of HOA dues. 9 Consolidated Complaint’s unjust enrichment cause of action is 10 failure to Defendants contention lacks merit. pay dues owed to the HOA and Defendants motion to dismiss the DENIED. ORDER 11 12 For the reasons stated, IT IS ORDERED: 13 1) Defendants’ motion to dismiss is DENIED in its entirety; 14 2) Plaintiffs shall lodge a formal order consistent with this 15 decision within five (5) days following electronic service of 16 this decision by the clerk. 17 18 IT IS SO ORDERED. 19 Dated: hkh80h December 20, 2010 /s/ Oliver W. Wanger UNITED STATES DISTRICT JUDGE 20 21 22 23 24 25 26 27 28 19